In a first for Congress, on December 4, 2020, the U.S. House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement Act of 2019 (MORE Act) by a vote of 228-164. The MORE Act effectively legalizes cannabis by requiring it to be removed from the list of scheduled drugs under the Controlled Substance Act (CSA). Currently, cannabis is a Schedule 1 drug, which means there is no accepted medical use, it is considered unsafe and has a high potential for abuse and dependency. The MORE Act also provides expungements for cannabis-related arrests, charges and convictions. Additionally, it would impose tax structure for cannabis (to be used for reinvestment in cannabis initiatives) and create social justice provisions. Specifically, the MORE Act proposes to accomplish these objectives by directing various federal agencies to implement the following measures:
Collection of Demographic Data
The Bureau of Labor Statistics shall collect data on the demographics of business owners and employees licensed in the cannabis industry, including age, certifications/license, disabilities, education and school enrollment, family and marital status, nativity, race, school, veteran status and gender (while keeping identifying data confidential).
Creation of Opportunity Trust Fund and Imposition of Tax
An Opportunity Trust Fund (OTF) would be created and funded by the U.S. Treasury by the collection of a 5% tax on the sale of cannabis products. The OTF would then be allocated as follows:
- 50% to the Attorney General for the Community Reinvestment Grant Program (CRGP);
- 10% to the Attorney General for substance use treatment services;
- 20% to the Small Business Administration (SBA) for the Cannabis Opportunity Program (COP); and
- 20% to the SBA to the Equitable Licensing Grant Program (ELGP).
Establishment of OTF Programs
Within the Office of Justice Programs, a Chief Justice Office would be established and authorized to administer the CRGP to provide, among other things, job training, literacy programs, legal aid and other assistance to "individuals most adversely impacted by the War on Drugs." For purposes of the MORE Act, an "individual most adversely impacted by the War on Drugs" is someone who has had an income 250% below the federal poverty level for at least five of the past ten years and has been, or has had a parent, sibling, spouse or child, arrested or convicted for the sale, use, possession manufacture or cultivation of a controlled substance, excluding distribution to a minor.
Establishment of SBA Programs
The SBA shall establish and administer: (i) the COP to make loans to small businesses owned by socially and economically-disadvantaged individuals that operate in the cannabis industry and (ii) the ELGP to provide funding to eligible states and locales to develop programs that minimize barriers to cannabis licensing and employment for individuals most adversely impacted by the War on Drugs (ELGP-eligible states and locales are entities that have taken steps to create an automatic process for expungement of cannabis offenses and eliminate violations of penalties for a cannabis offense). In order to receive ELGP funds, the program must provide at least four of the following:
- a waiver of cannabis license application fees for individuals who have had an income 250% below the federal poverty level for at least five of the past ten years;
- a prohibition of the denial of a license due to a cannabis offense;
- a prohibition on criminal convictions not related to owning and operating a business;
- a prohibition on suspicion-less cannabis drug testing of prospective or current employees; or
- the establishment of a cannabis licensing oversight board that is reflective of the demographics of the state or locality.
SBA Availability
Small business centers, women's business centers, the SCORE Program and Veteran Business Outreach Centers shall not decline to provide services to otherwise eligible cannabis-related legitimate businesses and service providers. Section 7(a) Loans, Disaster Loans, microloans and state and local development company loans may not be declined to otherwise eligible cannabis-related legitimate businesses and service providers.
Federal Public Benefits
No person may be declined a federal public benefit or a security clearance on the basis of use or possession of cannabis or on the conviction of a cannabis offense.
Immigration
For purposes of immigration laws, cannabis may not be considered a controlled substance and no alien shall be denied any protection or benefit based on any event relating to cannabis including events occurring prior to the MORE Act.
Expungement
Within one year of the enactment of the MORE Act, each federal district shall expunge each conviction or adjudicate federal cannabis offense since May 1, 1971. Any individual who is not under a criminal justice sentence may petition the court for expungement. For individuals under a criminal sentence, each shall receive a sentence review hearing resulting in a potential expungement, vacation of existing sentence and sealing of records.
The effect of the removal from the CSA would extend far beyond the text of the MORE Act as it would also ameliorate banking and funding problems that cannabis-related businesses (CRB) currently face and enable CRBs to take advantage of tax benefits available to businesses generally. For example, cannabis' listing as a Schedule 1 narcotic on the CSA is an impediment to federally chartered banks offering basic banking and lending services to CRBs due to fear of losing their charter, exposure to civil and criminal penalties and running afoul of federal money laundering and other financial crimes. Similarly, listing on the CSA prohibits CRBs from availing themselves of all of the benefits of the Internal Revenue Code (the Code). Section 280E of the Code disallows credits or deductions for amounts paid or incurred while trafficking controlled substances within the meaning of the CSA. The result is that CRBs may only deduct their costs of goods sold (meaning that they may receive the return of their money used to purchase the inventory back tax free), but cannot deduct other typical expenses such as rent, employee expenses and utilities. Section 263A further prevents a business from capitalizing disallowed deductions. The result is a very high effective tax rate for CRBs. Finally, cannabis' appearance on the CSA is a roadblock to federal grant and research funding for the same reasons. With this in mind, it is easy to see why the MORE Act's unwritten potential is greater than just the programs, funding, reform and initiatives set forth in the legislation.
Unfortunately, for now, the passage is perceived to be symbolic as Senate approval is viewed to be unlikely. The Senate has been vocal in its resistance to cannabis reform and has failed to pass the Secure and Fair Enforcement (SAFE) Banking Act aimed at providing federal banking resources to CRBs. The fact that the bill will almost certainly not pass the Senate sends a message from the Democratically-controlled House to President-Elect Biden that it is expecting progress on cannabis reform.
The November ballot sweep of adult-use marijuana in Arizona, Montana, New Jersey and South Dakota and medical use in South Dakota and Mississippi ratchets up the pressure for cannabis reform. The United Nations Commission on Narcotic Drugs recent removal of cannabis from its schedule of dangerous drugs brings the US removal into global perspective. With projections for CRBs to post close to $20 billion in sales in 2020, cannabis businesses being deemed "essential" during the pandemic and all but three states approving some form of cannabis use, it would seem that reform should be a priority for Congress. Of course, removal from Schedule 1 of the CSA would not impose any obligations on the states to legalize nor create and federal any federal licensing impositions on cannabis. Rather, the MORE Act creates access to federal programs, funding and resources.
We will continue to monitor the MORE Act, HEROES Act and the SAFE Banking Act in their various forms and reintroduction (and other similar bills relating to CRBs being treated as every other legitimate business). If you have any questions or would like more information about cannabis, CRBs or the legislation cited above, please reach out to Chris Wisniewski (wisniewskic@whiteandwilliams.com; 856.317.3649) or Ryan Udell (udellr@whiteandwilliams.com; 215.864.7152).
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